Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management

46 Pages Posted: 20 Sep 2000 Last revised: 11 Nov 2022

See all articles by Robert J. Shiller

Robert J. Shiller

Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

Ryan Schneider

McKinsey Consulting Group

Date Written: September 1995

Abstract

Labor income indices are created for groupings of individuals, using data from the Panel Study of Income Dynamics. People are grouped by a clustering algorithm based on an estimated transition matrix between jobs, by education level, and by skill category. The groupings are defined so that relatively few people move between them. For each of the groupings, we generate a labor income index using a hedonic repeated-measures regression methodology. Similarities between pairs of indices and between indices and individual labor incomes are described. It is argued that indices like those presented here might someday be used in settlement formulae in contracts promoting income risk management.

Suggested Citation

Shiller, Robert J. and Schneider, Ryan, Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management (September 1995). NBER Working Paper No. w5254, Available at SSRN: https://ssrn.com/abstract=225318

Robert J. Shiller (Contact Author)

Yale University - Cowles Foundation ( email )

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Yale University - International Center for Finance ( email )

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203-432-6167 (Fax)

Ryan Schneider

McKinsey Consulting Group

Washington, DC
United States